Amidst sluggish economic recovery,
), the designer and marketer of fine accessories and gifts,
posted better-than-expected first-quarter 2013 results.
The quarterly earnings of 77 cents a share beat the Zacks
Consensus Estimate by a couple of cents, and increased 6% from 73
cents earned in the prior-year quarter buoyed by strong top-line
growth on the back of healthy comparable-stores sales across
North America and China.
The New York-based Coach said that net sales for the quarter
came in at $1,161.4 million, up 11% from the year-ago quarter,
and came ahead of the Zacks Consensus Estimate of $1,159
Behind the Headline
Total North American sales climbed 8% to $784 million.
Direct-to-consumer sales increased 11% driven by comparable-store
sales growth of 5.5%. At POS, North American department stores
sales remained flat compared with prior-year quarter but
shipments into department stores dropped due to lower inventory
International sales surged 15% year-over-year to $362 million.
China business sustained its strong performance as sales soared
about 40% with a double-digit rate increase in comparable-store
sales. International wholesale shipments remained robust
attributable to sturdy sales trends across POS. Sales in Japan
inched up 1%, excluding foreign currency translation, whereas in
dollar terms, sales remained in line with the year-ago
The rise in sales was a positive indication for the
luxury-goods market, battered by the recent economic upheaval.
Coach's sustained focus on store sales productivity,
merchandising, and marketing and strategic pricing have helped it
remain afloat in a difficult consumer environment as well as
drive comparable-store sales growth.
The company remains optimistic about its unisex Legacy
lifestyle collection, dedicated men's stores and international
growth opportunities to counter the soft consumer scenario.
Gross profit jumped 11% to $845 million spurred by top-line
growth; however, gross profit margin remained flat but higher at
72.8%. Operating income rose 3% to $332 million but operating
margin contracted 210 basis points to 28.6%.
Management remains confident of sustaining double-digit
growth. The company's long-term growth drivers include expansion
of its global distribution model and entry into under-penetrated
markets. The company lays more emphasis on globalization and
accelerated international distribution growth.
As a part of its strategy to directly control certain Asian
markets, Coach is now directly operating domestic retail
businesses in Singapore and Taiwan. The company also acquired its
Malaysian and Korean retail business during the quarter.
During the quarter, Coach, the maker of handbags, wallets,
shoes and other accessories, opened 5 factory stores, including 3
Men's stores, taking the total to 174 factory stores in North
America. Retail stores count were 354 at the end of the quarter.
In Japan, the company opened 1 Men's factory outlet bringing the
total number of locations at 188.
In China, an addition of 8 new locations during the quarter
took the total to 104. As a result of the acquisitions of retail
businesses in Singapore, Taiwan, Malaysia and Korea, the company
now operates 7, 27, 10 and 48 locations, respectively.
Other Financial Details
Coach maintains a healthy balance sheet with a significant
cash balance and a negligible debt load. The company also has
been proactively managing its cash flows by making prudent
capital investments and enhancing shareholders' return. The
company's strong liquidity, positions it to drive future
The company ended the quarter with cash, cash equivalents and
short-term investments of $760.8 million and total long-term debt
of $23.3 million with shareholders' equity of $1,994.1
Coach also notified that it bought back approximately 3.1
million shares at a cost of $56.59 per share, aggregating $175
million during the quarter. At the end of the quarter, the
company still has approximately $85 million at its disposal under
its share repurchase authorization. The company's Board of
Directors also announced a share buyback program of up to $1.5
billion by June 30, 2015.
Currently, we maintain our long-term Neutral recommendation on
the stock. However, Coach, which competes with
Ralph Lauren Corporation
), holds a Zacks #3 Rank that translates into a short-term Hold
COACH INC (COH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis
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